At a long-term strip mining coal site it is proposed to maintain the main
temporary haulage roads serving the excavat ion by using hand labour. The
annual wage bill is estimated to be R78 000. With other associated expenses,
the total cost of labour to the cont ractor will be R108 000 per year. The
product ion of coal on the site expected to last 6 years, and alternat I've methods
of construct ing and maintaining haulage roads need to be investigated.
The f irst alternat I've is to buy a motor grader for R70 000 and, as a
consequence, reduce the labour force. Maintenance of the grader is estimated
to average R3 000 per year for the 6 years, af ter which it will have a salvage or
resale value of R15 000. The labour costs associated with the use of the grader
amount to R60 000 per year.
The second alternat I've is to lay more substant ial roads in the f irst instance,
extending these af ter 2 years and again af ter 4 years. Init ial costs are then R60
000, with a further investment of R30 000 and R28 000 af ter 2 and 4 years
respect ively. Total labour costs in this scheme amount to R48 000 per year.
If the return of at least 10% is desirable on the capital invested, which is the
most economic scheme?

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